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Question

A firm has an average profit of Rs 60,000. Rate of return on capital employed is 12.5% p.a. Total capital employed is Rs 4,00,000. Goodwill is to be calculated on the basis of two years purchase of super profit. Find the amount of goodwill?

A
Rs 20,000
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B
Rs 15,000
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C
Rs 10,000
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D
None
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Solution

The correct option is C Rs 20,000
Calculation of Goodwill by Super profit method
Goodwill = Super profit * No. purchase years
= 10000 * 2
= 20000
Super profit = Average profit - Normal Profit
= 60000 - 50000
= 10000
Normal Profit = Capital employed * Rate / 100
= 400000 * 12.5 / 100
= 50000

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